AmCham Event: Update on U.S. Sanctions

1. AmChamEvent:Updateon U.S. Sanctions Kirill Skopchevskiy Senior Associate, Moscow kirill.skopchevskiy@dechert.com

2. Disclaimer Nothing in this presentation should be considered as advice or a legal opinion on the matters addressed herein and may not substitute for legal counsel. It is provided as general information and content is not to be used without obtaining the author’s prior permission. Prior results do not guarantee a similar outcome. AmChamEvent

3. Chemical and Biological Weapons Control and Warfare Elimination Act (CBW Act) • Under CBW Act of December 4, 1991, “[w]henever persuasive information becomes available to the executive branch indicating the substantial possibility that .. the government of a foreign country has made substantial preparation to use or has used chemical or biological weapons, the President shall, within 60 days after the receipt of such information by the executive branch, determine whether that government … has used chemical or biological weapons in violation of international law or has used lethal chemical or biological weapons against its own nationals.” • On August 8, 2018, the US announced that the RF Government had used a lethal chemical or biological weapon against its own nationals following the alleged use of a “Novichok” nerve agent against UK citizen Sergei Skripal and his daughter Yulia Skripal. AmCham Event

4. CBW Act – 1st Round – Brief Recap • The US Department of State imposed the following sanctions on Russia and Russian state-owned or funded enterprises on August 24, 2018 (but in many cases, the US government simultaneously waived the application of the restrictions as permitted under the CBW Act): • Termination of foreign assistance (assistance under the Foreign Assistance Act of 1961) except for urgent humanitarian assistance and food and other agricultural commodities or products (provision was entirely waived). • Denial of any credit, credit guarantees, or other financial assistance by any department, agency, or instrumentality of the US Government, including the US Export-Import Bank (partially waived to permit the potential issuances of export licenses in support of government space cooperation and commercial space launches). • Termination of foreign military financing and sales, and an export ban on defense articles (no waiver). AmCham Event

5. CBW Act – 2nd Round of Sanctions • Were expected in late November 2018. • Round 2 could have been avoided if the US President determined and certified in writing to the Congress that: • RF Government is no longer using chemical or biological weapons in violation of international law or using lethal chemical or biological weapons against its own nationals, • RF Government has provided reliable assurances that it will not in the future engage in any such activities, and • RF Government is willing to allow on-site inspections by UN observers or other internationally recognized, impartial observers, or other reliable means exist, to ensure that RF Government is not using chemical or biological weapons in violation of international law and is not using lethal chemical or biological weapons against its own nationals. • On November 6, 2018, the State Department notified Congress that Russia had not met the conditions set out in the law. Thus by law, the President was required to impose at least 3 additional types of sanctions on Russia. AmCham Event

6. CBW Act – 2nd Round of Sanctions • The following additional sanctions were finally implemented: • US opposition to the extension of any loan or financial or technical assistance to Russia by international financial institutions, such as the World Bank or International Monetary Fund; • A prohibition on US banks from (1) participating in the primary market for non-ruble denominated Russian sovereign debt and (2) lending non-ruble denominated funds to the Russian government; and • Additional export licensing restrictions on Department of Commerce-controlled goods and technology. • Could have been worse: • Restrictions on the importation into the US of articles (which may include petroleum or any petroleum product) that are produced in Russia; • Downgrading or suspension of diplomatic relations; and/or • Prohibition for air carriers owned or controlled (directly or indirectly) by the RF Government from flying to or from the US. AmCham Event

7. CBW Act – 2nd Round of Sanctions • Opposing loans from IFIs: • takes effect on August 19, 2019 • On August 3, 2019, OFAC issued the CBW Act Directive to implement the second measure described above. Under this directive, “U.S. banks” will be prohibited from: • participating in the primary market for non-ruble denominated bonds issued by the “Russian sovereign”; and • lending non-ruble denominated funds to the “Russian sovereign”. • Each of the foregoing takes effect on August 26, 2019. • CBW Act Directive and related FAQs issued by OFAC clarified that: the restrictions apply only to “US banks” and not all “US persons”. The term “US banks”, however, is defined broadly to include any US entity that “is engaged in the business of accepting deposits, making, granting, transferring, holding, or brokering loans or credits, or purchasing or selling foreign exchange, securities, commodity futures, or options, or procuring purchasers and sellers thereof, as principal or agent.” AmCham Event

8. CBW Act – 2nd Round of Sanctions • “US bank” includes, but is not limited to, depository institutions, banks, trust companies, securities brokers and dealers, investment companies, etc., and US holding companies, US affiliates, or US subsidiaries of any of the foregoing. But does not include non-US subsidiaries, branches, offices, and agencies of “US banks”. • US asset managers and investment advisers are not specifically included in the examples provided by OFAC (however, we believe that they are covered); and • restrictions do not apply to US citizens or permanent residents who are not employees of “US banks,” including US persons employed by non-US banks. • “Russian sovereign” does not capture all Russian state-owned enterprises or quasi-governmental entities and means any ministry, agency, or sovereign fund of the Russian Federation, including the Central Bank of Russia, the National Wealth Fund, and the Ministry of Finance of the Russian Federation. Also, does not appear to capture regional government entities. • The restrictions will not apply to new bonds or loans denominated in rubles. US banks are not restricted from participating in primary or secondary markets for ruble-denominated bonds issued by, or lending ruble-denominated funds to, the Russian sovereign after August 26, 2019, e.g. ruble-denominated OFZ bonds. AmCham Event

9. CBW Act – Termination of Sanctions • National security waiver – the President under certain conditions may waive the application of any sanction imposed under the CBW Act (if, e.g. the President determines and certifies to Congress that such waiver is essential to the national security interests of the US). • The President shall remove sanctions if he determines and certifies to the Congress, after the end of the 12-month period beginning on the date on which sanctions were initially imposed, that the RF Government: • has provided reliable assurances that it will not use chemical or biological weapons in violation of international law or against its own nations; • is not making preparations for further use of chemical or biological weapons; • is willing to allow on-site international inspections to verify that it is not making such preparations; and • is making restitution to the Skripals. AmCham Event